Raising Cash or Other Peoples Money

At some time during your business ventures raising money will be necessary. Getting people to lend you money when you need it is difficult. Borrowing when you do not need to is much easier. As hard as it is to borrow money it is even harder to pay it back.

My advise is don't borrow if you can avoid doing so. Try every thing else first and if you must borrow have a plan on how you will pay it back. Then have a back up plan or two, as you will more then likely need them.

I have never been afraid to borrow money and over the last thirty years or more I have had bank credit lines, vendor credit lines, floor plan credit lines, equipment financed deals, credit card balances at such high numbers that it would scare you, business mortgages, and other loan types including business partners. I will say this about the loans, spending the money was easy and paying it back was always difficult. It was always easier to get the money when I didn't need it and always very hard to get it when I needed it badly.

The following is a brief discussion of many of the varied sources of capital, to give you some ideas for further research.

Partners: Raising money from business partners or using partnerships has one advantage, no monthly payments. The bad news is you have to deal with the people and the restrictions that causes. I have had to buy out every partner I ever had. But for start up money it is sometime the only money available.


Family: Raising money from family is the same as from partners with the added danger of bad family relations because of the personal aspect of family dynamics. I have always taken money from family with reluctance and always with proper paperwork and documentation to avoid any mis-understandings.

Last resort: Think of everything you can do to reduce the need for extra cash and do them first. Cut your over head, lay some one off, barter, do with out, trade goods and services, and so on. Paying back loans creates interest expense and restricts future cash flow uses.

Bank loans: Bank loans are secured loans and banks all most always require a personal guarantee. A bank will want assets they can secure the loan with, two years tax returns on you and your company, a copy of your business plan, a personal financial statement, a list of intended loan uses, and a plan on how you will repay the loan. Your bank loan will be at a floating rate, prime plus 2% or LIBOR plus 2% or something similar. As the fed rate goes up so does your payment and interest rate. Bank loans are easy to get when you do not need them and very hard to get when you do need them. Banks will require updated paper work from you annually.

Mortgages: Home type loans are easiest to get and the least costly. Business mortgages generally require thirty percent down and a strong financial statement and balance sheet. Most mortgages are written by banks. Try the banks directly before using a loan broker as it is often cheaper. The intrest rate will float as on other bank loan. Fixed intrest rate loans often are 2% point higher then the floating rate. The loans are often written for two to five year terms and with a balloon payment at the end. Banks also make SBA guaranteed real estate loans and might include a line of credit loan or equipment along with the mortgage. The SBA backed loan is a 10% down loan, often at a twenty years amortization and the line of credit loan can be ever-greened (pay interest only) for five years. SBA backed loans are for owner occupied buildings.

Small business development loans: In most major markets there are organizations who make loans to small businesses. The purpose of these lending organizations is to promote locale business and to create jobs. Each of these organizations have their own specific requirements and limitations. Search them out as they can be a good source for flexable funding.

Factoring: Factoring is the selling of your receivables against future collections. Typically a factor company will advance you money based on the invoiced amount of shipped goods. They advance you typically 80% on the invoiced amount and get paid when the customer pays you. The cost is typically 2% of the amount advanced. Most factors want at least a million dollars of factored invoices a year to be even considered. This is very expensive money.

Equipment loans: Many a seller will offer loans on their products at favorable terms. It usually is worth comparing the loan they offer to any other financing you have available. Equipment is depreciated on your balance sheet if it is financed.

Equipment leases: Easy to get, leases are expensive money, typically 24% plus per year. Look for hidden fees and hidden taxes. Shop around, rates and terms vary wildly. If you lease equipment do not pay property taxes on the equipment as the lessor will bill you for the property taxes annually. You will also be paying property taxes on the full purchase value until the lease is payed off, (a tax rip off) and leases can have unstated charges such as payment of residue value at the end of a lease to keep the equipment. Hint; that residule fee is pure profit to the lessor so negotiate it way down, or he has to pay to pick up the equipment from you at the end of the lease. Often the equipment is over priced as well. You have been fairly warned of the possible perils of leases. Leased equipment is expensed on your P&L as the payments are made rather the depreciated. It is often referred to as off balance sheet financing.

Vendor Terms: Many companies offer vendor terms (referred to as invoice dating) Typically a company sells you product and you pay the invoice at a future date. IE: a company sells you product with six months dating, with payments due 1/3 may, 1/3 June, 1/3 July, or some similar payment plan. Most of these companies will offer you large prompt payment discounts if you for-go the extended terms. Many a company gets in trouble because of dated terms, they over buy and when sales are less then anticipated they can't pay the invoices and then the interest kicks in and bad relationships with vendors result.

Sale lease back: If you own a valuable asset you might be able to sell it then lease it back.

Credit card factoring: A company advances you against your daily credit card receivables. Typically the company offering this type of lending becomes your credit card processor, and then advances you 80% of you average monthly credit card volume. They take the money back by keeping a percentage of your daily credit card processing. IE: if you do $100,000 a month in credit card charges to your customers you might get an $80,000 loan, then pay it back daily as you run credit cards. If you run $100,000 of credit card transactions amonth, you would pay back $30,000 the first month. The interest rate is high and the fees paid for the credit card processing may be higher then the going market rates. Credit card factoring can be very expensive money.

Peer to Peer borrowing: On line borrowing is available just do a Google search for peer to peer lending. down side is hi intrest rates, good to fair credit being the only criteria. The amount you can borrow is limited.

Credit cards: You can use credit cards to borrow if you pay on time and can stand the high payments. If the cards go to maximum rates or you have late fees you can get buried real fast. Use them wisely and they will help you over the rough spots. Just keep in mind credit cards can be an easy trap to get caught up in.

Limited partnerships: These are regulated by the individual

states and there are limitations on advertising and the number of partners allowed. See The Making Of A Real Estate Limited Partnership

Selling stock: The sales of securities are regulated by state laws and by the security and exchange commission. I have not found an inexpensive way of issuing stock to the public. Private stock issuing is very easy, your attorney can set up your corporation and issue the stock. If you are going to sell stock to the public get competent legal advice and plan on a cost approaching 30% of the value of the stock issued. Anything under a million dollars probably is not worth doing.

Regulation “D”: This regulation allows you to sell stock on a limited basis without file-ing with the SEC. See http://www.sec.gov/answers/regd.htm

Borrowing from your customers: You can, kinda. If you take credit cards you can charge the customer in advance and use that money to order the goods. Depending on your credit card sales volume this can be tens of thousands of dollars of float depending on how many of your vendors will bill you for payment in thirty days.

Vendor credit: Many of your suppliers will bill you on varying  terms from seven days, to as much as 90 days. Just ask for terms. It is not unusual to have tens of thousands of dollars owed to vendors.

Tax liabilities: These are loans in reality because you are collecting or saving the tax money to be remitted to the taxing authority at a later date. The tax liabilities might include payroll taxes, sales taxes, income taxes, security deposits, and property taxes. Plus any other moneys held in trust.

Seller of a business: All most all sellers of a business have to finance some part of the sale. If you are buying a business get as much financed from the seller as you can.

Franchising: Expanding your business by franchising is one way to grow a business. Franchising is a regulated activity and the cost of compliance can easily exceed a $100,000 plus the cost of getting your concept ready for your franchise's. If you are buying a franchised business your franchiser may well offer financing to get you started.

Venture Capital: Venture capital firms seek very high rates of return, and take a minority interest in the companies they fund. The venture firms are usually looking for companies in a specific stage of development based on their firm's criteria, start up funding, first and second stages, expansion and buy out. They look for huge potential and a way to cash out in five years or so.

State venture capital funds: some states have state sponsored venture funds. These are funds set up to promote business in the state and create jobs or spur growth in a specific industry that is of importance to that states goals.

Home equity: Borrowing using your home as collateral is a low cost way of raising money. This type of loan is very popular with start up ventures as it requires the least amount of paperwork and scrutiny.

Credit unions: Recently credit unions have changed their focus and they might be a source of business loans. They do home equity and other personal loans as well.

Others: Insurance companies, thrifts, commercial lenders, employees and individuals are all possibilities. You will find this group of lenders not very fruitful. Some insurance companies have venture capital funds. Employees are a source if you want to do an ESOP stock offering. Commercial lenders are most often reaches via a loan broker. Individual lenders are relationship type loans, so who do you know who likes you that much?

Loan Brokers: Loan brokers work on commission. If the loan broker wants money in advance? Run for the nearest exit. The broker should be paid from the loan, at the loan closing in all cases. Loan brokers will need lots of documentation and information on you and your business. brokerage commissions vary wildly, as do the minimum amount of loan they will work with. Most specialize in a particular field or industry. I have used loan brokers twice and paid 2% of the loan amount each time.

Hard Money Lenders: Hard money, refers to money secured from private lenders who lend money at high intrest rates. They are common in the used car business, house flipping business and similar business that are not favored by banks. Most hard money lenders like short terms and rates of 20% to 40% on their money.

 

 

 

 

 

Record Keeping & protecting your assets.

 

A young man asked me for business advice some years ago and I told him to go take a book keeping course or an accounting course. He was a bit put out by this, he wanted me to encourage him to plow ahead and jump right in, he wanted me to reassure him that he was doing the write thing. I had asked him where he had worked and what experience he had in the business. He told me about his experience and knowledge of his chosen industry, but he had not said a thing about working in the book keeping department. Thus my suggestion of some accounting training.

As an owner/operator of a business your primary job is to make a profit and stay in business. The most often cited reasons businesses fail is lack of working capital, poor planning, and insufficient record keeping. Most small business owners do a poor job of record keeping and most do not know how to annalise a profit and loss statement or their balance sheet. Most small businesses would be more profitable and have a more successful business if they would learn a little accounting.

Book keeping: I am not going into the intricacy of book keeping here. There are many good books on the subject as well as more information available on this web site, See Business Basics; Setting up a business in the US . Manual book keeping systems, as well as accounting software programs are readily available at office supply stores and some free accounting software is available on-line. The main thing with book keeping is you have to do it everyday. It need not take much time but it needs to be done on a regularly consistent basis.

Operating information: Is information that is needed to control day to day operations and thus your businesses profitability. Each business has key information that the gives managers a quick heads up on how they are doing. In our on line retail business the key items are, daily sales volume, gross profit margins and shipping cost. I want these numbers daily. Sales and shipping cost along with the average gross profit margin, lets me know at what sales volume I will reach my break even point for the month. On an every two weeks basis, I want the payroll cost and cash flow statements. Payroll is a large expense and as such can get out of control quickly. On a monthly bases I analyze everything, sales, cash on hand, A/r, A/p, and so on.

For example: Lets say your over head expenses come to $20,000 a month. Your average profit margin is 33% after cost of goods sold and shipping cost. You need $60,000 in sales at a 33% gross profit margin to break even. If you lower prices 10% your gross margin drops to 25% and your break even sale volume goes up to $80,000. Higher over head cost or higher shipping cost will have a similar effect. If you know the numbers you can make intelligent decisions.

Expenses: Over head operating cost are easy to create and very slow and painful to reduce. Be very leary of long term commitments and add escape clauses to all contracts that let you off the hook if you go out of business, if the street in front of your business is torn up for any reason, if your business is interrupted for any reason. Does it sound like I am being overly cautious? Not at all.

I have seen businesses go broke because the landlord wanted paid when the street was not passable. You should have a lease clause that says you are renting the location because of the viability and accessibility of the location and that the rental amount will be reduced by 80% if the accessibility or viability of the location is compromised for any reason.

I've seen business men get hounded for monthly payment on a trash dumpster contract long after closing a store. Protect yourself with escape clauses on all long term commitments no one else will look out for you but you.

Record keeping: Your banker will request information, all them government forms require information, and the list continues. Record keeping can be kept simple but should be organized so that you can easily find things. I suggest you get a four drawer file cabinet and make folders for everything, label the folders and date them by year, it's that simple.

Internal controls protects you from errors

Internal controls and theft: Set up office procedures and warehouse procedures that create a checks and balance system.

The person who takes cash in or records sales and receivables does not make out bank deposits or balance the check book. Purchase orders should be used for all purchases, they should be approved by management, attached to the vendor's invoice with any receiving documents, all this attached to the check for managements signature when it is time to pay the invoices.

Similar controls should be set up for credit cards, bank deposits, contract approvals, daily cash register receipts, and all other cash in and cash out items as well as merchandise in and merchandise out.

Safe Keeping: You need to physically protect your companies assets. This would include insurance for all perils, liability, hazard, transport cargo, workers comp, and maybe business interruption insurance as well as key man insurance. Visit with your insurance agent for advise on what your specific business needs.

All records of the business as well as back up computer disc needs to be kept in a fire proof file cabinet or safe. Safe guard your records as they are expensive to recreate.

Security and safety: Each business has security needs unique to their operation, here are some considerations to get you thinking about your businesses needs. Make a list of all asset serial numbers, photograph them. How is the lightning in your facilities? Alarm system needed, fences, gates, locks, fire equipment, OSHA required safety plan and equipment, evacuation plan need. Do you need a safe, drop safe, or armored car pick up?

 

It may seem like a lot, but once set up it only requires monitoring.

 

 

 

 

 

 

 

 

 

A Location for your business

Every business needs a location to operate out of. For some businesses location is not of prime importance, and thus the business can be located for the owners convenience. For most businesses, location is critical to the businesses success and survival. Selecting a location for your business is one of the most important decisions you will make. Choosing a business location is a large financial commitment that deserves careful consideration and planning.

To often a businesses location is chosen for the wrong reasons. Some of the reasons not to choose a particular location are, availably, low cost, it's availability, convenience, occupied by a similar business priorly, already owned, I like it. These are also good reasons, so long as the location is right for the business you have in mind, often the location is a poor to bad choice.

A good location has to fit the business not the other way around. Each business has specific needs that will make the business successful and the location must fill those needs. You, as the experienced party are best suited to make those decisions.

The top three causes of business failures are, lack of sufficient financing, lack of experience and a poorly chosen locations. I will assume you have the financing somewhat worked out as you are going forward with site selection, I will also assume you are experienced and banking on your number one asset, you. That leaves location, and we will discuss here the practical advice you need for choosing a location.

Importance of your location:

Your location has a direct effect, on your image, sales volume, overhead cost, taxes, advertising, getting and retaining staff, traffic, visibility, signage needs, and thus profitability. Each location should be evaluated from the vantage point of the business, the customer and employees.

Each business has requirements unique to it. It is hoped you accessed your businesses location needs in some detail in your business plan. In most retail businesses visibility, accessibility, and traffic counts, are important considerations. Other considerations might be convenient parking, cost, lease terms etc. The location also needs to be in a area where the intended customer base shops at. For example; a high end dress shop will not do very well in a middle class neighbor hood. A product distributor might need to locate central to his intended customer base to control delivery cost.

Planning pays:

You start your location planning by identifying who your customers are, their needs, where they are located and how they will locate you. As you go through the research process you will become more clear as to what defines a suitable site. You should develop a list of positive site requirements and a negative list for use when comparing one site to another. Eliminate as much risk as you possibly can of choosing a well suited location and you will increase your chance of having a successful business.

A poor location:

I recently visited a new bar-b-que restaurant near my home, it is located on a FM road that runs through a little town. The location was chosen because the family owned the property with road frontage. They built a rustic, tin roofed building and set up shop. I predict the business will fail for a multitude of reasons, but mostly their demise will be from a mediocre location. A better, and certainly more expensive location on a major hwy two miles away would have been much more conducive to the businesses continued operation. Most business problems can be corrected fairly easily assuming a knowledgeable owner/manger, but a poor location can not be easily, or inexpensively remedied.

A Good loaction; A high-end furniture re-sale consignment shop I frequent is located in a wealthy neighborhood's business district, it is an idea location for this business. The proprietor pays $6,000 a month for a 5900 square foot retail store where the floor space is chopped up into little rooms, as they where smaller shops at one time. The ceilings are to low, there is no store room or freight dock and I could go on and on with the buildings short commings. The owner complains about the landlords lack of maintenance and the locations less then desirable attributes on a regular basis. I asked why they did not move, they said because the location is central to the businesses success and no other suitable location exist in the trade area. This business pays 7% of gross sales for rent, in a not idea building, in a great location. Smart people if you ask me. In a less desirable location they would spend more then that on advertising.

Finding a good location:

In order to locate a desirable location, make a list of your businesses requirements. Ask questions that will lead to a realistic list of expectations and not your personal preferences.

• Who are your customers?

• Where do the live?
• How much can you afford to pay?
• When do you need it?
• Lease or buy?
• How much traffic do you need?
• High visible?
• Advantages to be near the competition?
• Parking?

When choosing a location think of what the business needs to have a good chance to succeed, get as many of those requirements filled as possible. It is hard enough to make a business profitable without fighting a poor location that makes the task next to impossible.

Cost:

Before we get into some specifics about finding a good location lets talk cost for a minute or two. Cost of buying or renting is aways a consideration and if your businesses site requirements are not super critical, I suggest looking for afford-ability. Those monthly rent payments come to fast and to often, so the lower the payment the better. On the other hand, if location is critical to your business success, pay the rate and charge accordingly to afford it. Keep in mind your competition has the same problem.

General Considerations:

Area economic strength is important to your success. What is the economic condition of the local area?

What is the average household income in your trade area?

Population growth. Is the population increasing or decreasing? How is that population made up, married? Single? Age groups, income levels, home owners, apartment dwellers, other trends?, etc. This information is available from the U.S. census data office.

Competition; Who is your competition? Where are they located? What type facilities do they have that your customers will expect you to provide? For you retailers, customers tend to shop at the biggest store they can,  thinking the bigger stores have a better selection, so keep this in mind when evaluating your competition and potential sites.

Local conditions; Transportation, ingress and egress, taxes rates, zoning issues, availability of needed services and the like?

Neighborhood; What type of neighbor hood or buiness area is conducive to your business model? What are the traffic patterns in the area? Other business in the area and the effect they will have on your business?

Traffic and parking; traffic and visibility are good for business unless there is so much traffic that access is denied. A traffic count is available from the city, county or state highway commissions. You should conduct a traffic survey for any site you are considering

Planned road construction: Is there any planned remodeling of the streets planned during the duration of your lease? Many a business was put out of business by road construction projects. Check with the state highway and local city or county planning departments.

Site specific considerations; going home side of the street is most often preferred. Parking availability. Sign-age considerations, accessibility of competition to locate near your site, building size, building design, future expansion possibilities.

Leasing; leasing is a contractual obligation, committing you to pay the rent for the full lease term. A lease at $3,000 per month for five years is a $180,000 commitment. Because of this, a shorter lease term lease with renewals is best. If you must pay for the finish out and modifications to get a shorter term then do so. Flexibility in the lease terms allows you to cut your losses should the need arise. A ingress, egress clause that reduces your rent by 80% or so in the event your leased business site is not accessible in the normal manner for any reason (to include road construction) can be a life safer if the road is torn up in front of your business.

All leases should be reviewed by your attorney with protecting your interest in mind. Some of the clauses to be checked over are, rent increases and frequency, chattel clauses, late fees, taxes, repairs, sign-age, restrictions, competition restrictions and limitations, deposits, common area maintenance fees, percentage participation clauses, advertising clauses, insurances requirements, and cost pass throughs, sub letting, merchandising limitations, hours of operation clauses, holiday clauses, out door storage, maintenance clauses clauses, to name but a few. A real estate attorneys' review will save you money and or grief.

Adding lease clauses; Your landlord will undoubtedly have a standard lease form. Have your attorney add clauses to protect you and your business. Leases are very large financial commitments and legal documents that need careful evaluation, and protection clauses added for your business. If the landlord is not fair in their dealings with you now, don't expect it later. The larger (financially) a party involved in a lease deal is, the more likely it is they will have an attorney protecting their interest. The smaller financially the party involved in a lease is, the less likely they will use an attorney. It should be the other way around, as the smaller party is less likely to be able to afford any future conflict or financial loss.

Buying vs. leasing; Buying a site needs to be evaluated with considerable care. Some of these considerations are, price, location, terms, amount of cash needed, time to remodel, long term viability, growth potential, parking, ingress, egress, traffic patterns, alternative use potential and so on. Manny a business man has found that the value of their business after twenty or more years in business, is in the real estate. I recommend buying when all else is equal. But you must do what is best for the business after careful evaluation.

Help: Consider any help that might be available to you. Some communities and states have funds for relocation and business development. Visit the local chamber of commerce and ask what assistance they might provide. Visit local government offices, many have business incentives and whole departments set up to aid and assist you. Don't forget the local SBA office. Local collages some times have students who will do site evaluations for class credits.

 

Professionals are available to assist in site selection. From local real estate agents to professional site evaluation firms.

 

 

Good luck with your search.

 

 

 

 

 

 

 

 

 

Planning your business, Cash flow and Cash budgeting.

The shortage of cash is to often a problem for new businesses. Many a business has found themselves profitable and growing and going broke. Preparing a business plan with cash flow projections is difficult and time consuming and necessary for the future growth and survival of your business. You will find a cash flow statement a invaluable management tool.

If your sales are growing to fast or you expanded without sufficient cash on hand to fund the increased expenses, or increased accounts receivable, you might find yourself running short of operating cash. By preparing a cash flow statement, planning for sales growth, and making preparations in advance you can avoid a cash crunch.

I will assume you will be using a business plan software program to help you prepare your cash flow budget.

Budgeting:

1. Review your current accounting statements, profit and loss, balance sheet, accounts receivable and accounts payable.

2. Prepare a five year business plan with financial forecast.

3. Prepare a detailed one year forecast of sales

4. Include a one year monthly cash flow projection and a five year annual cash flow plan.

Reviewing your current accounting statements will provide the information for making your future financial forecast.

• What is your sales volume by month?

• What is your gross profit margin %?

• What is your net profit %?

• What is your expense as a % of sales by expense category?

• What is your cost of money?

Get use to looking at percentages rather then just dollars as the percentages put things into perspective when making comparisons. You can spot problems much faster looking at changes in % over time then changes in dollars alone.

Ratios:

Here are the mathematic ratios a banker will apply to your financials when they are reviewing your credit worthiness. Each industry has ratios that are common for that industry and you need to discover them.

Current Ratio; Current assets divide by current liabilities.

This ratio tells you how leveraged you are, below 1.0 you have a negative net worth. The higher the number the more likely you will stay in business.

Quick Ratio (acid test); Cash plus receivables divided by current liabilities.

This ratio is more telling as it shows how liquid you are, as it does not include fixed assets or inventory which are not convertible to cash quickly, or at full value.

Leverage Ratio; Total assets divided by net worth.

Debt to equity; Total debt divided by net worth.

A bank will look for a low debt to net worth ratio as the bank assumes that most of the assets will only bring 30% to 50% at auction.

Inventory turn over; Cost of goods sold divide by average inventory value.

Inventory turn over varies from industry to industry, if it applies to you at all. Most retailers want four turns a year. A restaurant, cigarette store, or vegetable dealer might want 26 or 52 turns a year. Less then two turns is problematic.

Receivables ratio; Accounts receivable, divided by Sales, times 365 = days outstanding.

Receivables should be in the 30 day range, at 90 days they are seldom worth face value and are costing you money.

Where are you today;

After you examine your company's current financial condition you will know where you are today.

You can then prepare a budget for the coming year. If you use a business plan format the software you use will help you do the math. A comparison of your current position and your next year(s) forecast allows you to plan cash flow needs and uses of cash.

Your future forecast are only as good as the accuracy of your sales forecast and the gross profit on those sales. If your sales forecast are out of line everything else will be to. The less accurate your sales forecast the greater your need for cash on hand.

Long term objectives; List your companies long term objectives. What are your goals and how do you plan to archive them? Sales? Expenses by category? Marketing? Net profit? Gross profit? Working capital? Loans? Accounts payable? Accounts receivable? And so on. After you have listed your companies general business objectives and then made a detailed list of what you will need to archive them, you can assign dollar figures to them.

A cash flow budget;

Your business plan software will calculate a monthly pro-forma profit and loss statement based on the information and assumptions you provide. It will produce a cash flow budget that you will need to adjust to fit with items not included in the business plan model that are specific to your business. Such as, research and development, equipment needs, new hires, personal needs, and so on.

A cash flow budget shows how much money is needed to support your projected sales volume, meet the companies projections and obligations. The cash flow forecast will give early warning of the need for additional cash. It will provide management and potential lenders the confidence that you have made preparations to adept to new opportunities and potential problems. You need to be able to prepare your own cash flow needs statement and not rely entirely on your CPA only you know what you have planned, and you will have to deal with any problems.

 

Using the information:

Management: As a management tool your proforma P&L statements and cash flow statements can be compared with your actual results to see what you are doing well and where you need to make improvements.

Planning: Your cash flow forecast allows you to plan your cash needs and cash expenditures.

Lenders: Your banker will want to review your current statements and your pro-formas to determine your companies ability to get a loan or renew your current loans. The time to borrow is when you do not need the money. If you wait until a problem arises you will find it difficult to get the loan at favorable rates.